“While FY19 saw hyper-competition between four well-funded food delivery players, FY20 ended with a two player market structure,” Zomato CEO and co-founder Deepinder Goyal said in a mid-COVID-19 performance report published by the company on Friday. Like app-based cab booking, app-based food delivery is indeed a duopoly now — Zomato and Swiggy remain the only players in the market, with Uber Eats having been sold off to Zomato and Ola significantly scaling Foodpanda back. While Goyal admitted in the report that the COVID-19 pandemic hurt the company, he maintained that it remains on its path to be profitable.
“We expect to make a complete recovery in the coming 3-6 months while continuing to maintain tight control on costs/profitability,” Goyal said, arguing that the business is healthier because of COVID too (laying off 13% of the workforce may have played a part there, something Goyal didn’t mention). He said that young people moving to their parents’ homes meant that delivery demand didn’t go back to pre-COVID levels immediately, but that this would happen within 3–6 months.
- Improved unit economics: As customers warm to food delivery more, Zomato is making more money per order (since restaurants pay percentage of order value). The company is also reducing subsidies and discounts to users gradually, which has led to a sharp increase in the company’s margins. “In Q1 FY20, we used to make a contribution margin of –₹47 per order; in Q1 FY21, we made contribution margin of +₹27 per order,” Goyal said. But he said this won’t last (perhaps due to restaurants reopening for diners), and said the company expects the margin to stabilise at ₹15-20.
- Zomato Gold/Pro growing steadily: The company is doubling down on Zomato Gold, saying that in spite of the logout campaign from registered restaurants, Gold subscriptions were growing healthily. The company said that as of March 2020, it had 1.7 million subscribers. In addition to giving subscribers free food and drinks on partnered restaurants, Zomato is elbowing its way into the billing part of the business too. Zomato Gold, now rebranded as Zomato Pro, will only let customers have their benefits if they pay through the Zomato app. Not a bad deal for Zomato, which gets to improve Gold revenue by also getting a cut on the actual orders on top of subscription fees.
- Getting a share of the supply business through Hyperpure: On top of getting a cut on dine-in sales, Zomato is also aggressively scaling its efforts to take over the supply chain to restaurants’ groceries. Hyperpure, the company’s arm to sell vegetables to restaurants, has scaled revenues by over eight times between FY19 and FY20, and more than quadrupled the number of restaurants it has signed up. So, a cut on transactions, a cut on supplies, a cut on delivery orders, reduced discounts, and delivery fees. With costs going down and these revenues climbing, it’s no wonder that Zomato sees a path to profitability in the near term.
The company is facing other issues amid the pandemic and increased tensions with China — a $100 million investment from Ant Financial has been held up as the government scrutinises it. On top of that, many migrant workers who were part of Zomato’s delivery workforce went home, affecting the company’s capacity to deliver. But Sanjeev Bhikchandani from InfoEdge, which has a 22.71% stake in Zomato, told investors that they dealt with this problem by offering incentives to delivery agents and passing that cost on to customers; as for investments, he said that other investors had shown interest in Zomato other than Ant Financial.